What is the optimal level of provision of a public good?
What will be an ideal response?
The level at which society's total willingness to pay per unit is equal to the marginal cost of producing the good.
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In the circular flow model, which of the following is on the selling side in the goods market?
A) federal, state, and local governments B) only households C) exporters D) only firms E) both firms and households
The measurement of GDP handles underground production by
A) including the amount produced in this sector of the economy in exactly the same way that all other production is included. B) omitting it because underground production is unreported to the government by the people involved. C) adding it at fixed prices that change only infrequently. D) adding an estimate of it because it is difficult to precisely measure underground production. E) omitting it because, being illegal, it has no effect on the nation's total production.
Are the owners of taxicabs in New York City earning large profits because the city severely restricts the number of licenses?
A) No, because the city also regulates fares. B) No, because the cost of owning a license absorbs the potential profit. C) Yes, because the number of licenses has not been increased for 50 years. D) Yes, because if they were not the number of taxicabs would decline and profits would rise. E) We cannot tell because profit arises from uncertainty.
What is the relationship between marginal cost and marginal revenue when a single-price monopoly maximizes profit?
What will be an ideal response?